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Fund of Funds

A fund of funds is a fund whose portfolio consists mainly of units of other investment funds and exchange-traded funds. The fund basket umbrella fund is a separate type in the CMB’s fund classification.
Contents
  1. 1.Key points
  2. 2.Formula / calculation
  3. 3.Worked example
  4. 4.Interpretation
  5. 5.Pitfalls
  6. 6.Official sources
  7. 7.Frequently asked questions

Key Points

  • The founder combines funds with different strategies and asset classes in one portfolio, so a single purchase spreads the investor across many funds.
  • Funds of funds suit investors who want diversification and prefer to leave the allocation between funds to a professional manager.
  • costs come in two layers, as both the basket fund’s and the target funds’ expenses reduce the return.

Formula / Calculation

Fund-of-funds return ≈ Σ (Weight of target fund × Return of target fund) − the fund of funds’ own expenses. The target funds’ expenses are already reflected in their unit prices.

Worked Example

Illustrative

Take a fund of funds holding 50% in an equity fund, 30% in a debt fund and 20% in a gold fund. If on one day those funds move 2%, 0.5% and −1%, the basket’s return before its own costs is 0.50 × 2 + 0.30 × 0.5 + 0.20 × (−1) = 0.95%.

The figures are hypothetical values chosen to explain the concept; they are not data for any real fund, stock or market.

Interpretation

Funds of funds that invest in foreign funds are also used to access overseas markets in Turkish lira.

Funds of funds suit investors who want diversification and prefer to leave the allocation between funds to a professional manager. Portfolio reports show which funds are held and in what weights.

Pitfalls

costs come in two layers, as both the basket fund’s and the target funds’ expenses reduce the return. The CMB also applies a maximum total expense ratio to funds of funds by fund type. Tax treatment can vary with fund type and holding period, so check the current withholding rate before trading.

Official Sources

Official regulation and sources the definition is based on.

Pages Where This Term Appears

Related Terms

Frequently Asked Questions

A fund of funds is a fund whose portfolio consists mainly of units of other investment funds and exchange-traded funds.

Fund-of-funds return ≈ Σ (Weight of target fund × Return of target fund) − the fund of funds’ own expenses. The target funds’ expenses are already reflected in their unit prices.

Prepared by: Yatırımcı.AI Research TeamLast reviewed: Method: MethodologyEditorial policy